Tax break on a new car purchase?
 

Hello guys,
I heard IRS is offering a tax break on a new car purchase that are done before 12/31/2009.
Does this apply to ALL manufacturers?
What kind of tax benefit are they talking about? Full return of the sales tax paid for the vehicle?
I don't see the hype about this deal and am kinda bummed. Cuz I think it's a great deal.
Anyone have further info about this tax break?
Thanks,

Dan

Sales tax paid for a new vehicle can be used as an itemized deduction against your federal income taxes.

Dig.

:tophat:

Used car too.

really?

I'm emailing my accountant today!

No. I read it only applies to new car purchases of up to $49500

Dan

... or the portion of taxes paid on the first $49500 of a new car, if you get something more expensive than that (ie. buying a $50000 car doesn't make you ineligible, you just don't deduct taxes on that last $500).

This is a 2009 tax CREDIT. That means that they will give you back, dollar for dollar, any sales tax you paid on your NEW vehicle, up to a purchase price of $49,500.

In Texas (and most other states), you get a tax DEDUCTION for the value of the sales tax on any vehicle (used or new). So, you don't get it all back, just a portion of it.

[QUOTE=JonBoy,Nov 25 2009, 12:28 PM] This is a 2009 tax CREDIT.

Yes, up to the amount of taxes paid on $49,500 of the purchase price.

Which is it? You contradicted yourself.

For the last several years, it's been a tax deduction, not a credit (but I'm not up to speed on all the incentive handouts)

The specific example they're talking of is a tax credit for this year, for new cars. Otherwise, any other year, you can always get an itemized tax deduction.

hey jonboy, you wouldn't happen to know about ca would you? Its ridiculous out here, 9.75%.

It's a federal tax credit so you should still get it there.

IRS press release:

"The deduction is limited to the state and local sales and excise taxes paid on up to $49,500 of the purchase price of a qualified new foreign or domestic cars, SUV's, light trucks, motor homes or motorcycles that weigh no more than 8,500 pounds. You can still buy a qualifying vehicle for more than $49,500 (e.g a $80,000 BMW per a commenter's question below), but you will only get a tax deduction up to the specified limit.

The deduction is only available to families making less than $260,000 (or $135,000 for single filers). It is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

The new vehicle must be purchased on or after Feb. 17, 2009, and before Jan. 1, 2010, to qualify for the deduction. Purchases before Feb. 17, 2009, are not eligible for this special deduction.

How to claim the tax deduction : The deduction is available regardless of whether a taxpayer itemizes deductions on their return (Schedule A). The deduction cannot be taken on 2008 tax returns (even if they are amended or filed late), so must be claimed when they file their 2009 returns in 2010. Also, unlike other tax credits in the economic stimulus package this tax break is not an offset to your federal taxes (i.e. a tax credit), it is a deduction against your taxable income."

Source: http://www.savingtoinvest.com/2009/02/car-...a-economic.html

From IRS website: http://www.irs.gov/newsroom/article/...209624,00.html

"IR-2009-60, June 10, 2009

WASHINGTON —The Internal Revenue Service and Treasury Department today announced that a tax break for the purchase of new motor vehicles is available in states that do not have a state sales tax. Under the American Recovery and Reinvestment Act of 2009, taxpayers who buy a new motor vehicle this year are entitled to deduct state or local sales or excise taxes paid on the purchase.

The IRS and Treasury have determined that purchases made in states without a sales tax — such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon — can also qualify for the deduction.

The IRS said today that taxpayers who purchase a new motor vehicle in states that do not have state sales taxes are entitled to deduct other fees or taxes imposed by the state or local government. The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee. According to the IRS, Congress intended for these fees or taxes to qualify for this special tax deduction.

“This special tax break is available for people purchasing a new car this year, and that can include people in states without a sales tax,” said IRS Commissioner Doug Shulman. “This means that more people can take advantage of this deduction when they file their tax returns next year.”

To qualify for this deduction, the vehicle must be purchased after Feb. 16, 2009, and before Jan. 1, 2010. Taxpayers can claim this special deduction only on their 2009 tax returns to be filed next year.

The deduction is limited to the fees or taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle.

The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

The special deduction is available regardless of whether taxpayers itemize deductions on their returns. Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return. The IRS reminded taxpayers the deduction may not be taken on 2008 returns."

^
:thumbup:

I think people are confusing a "credit" and a "deduction". I'd love for this to be a credit, but it's not, it's a deduction.


Thanks for posting that up Gary :hello:

Thank you, MrClean.

It's still better than nothing.

Nice info, thanks!

definitely better than nothing..just making sure that people aren't thinking that they get their full tax amount back as credit... because that's hardly the case.


<---bought a car in october so will definitely benefit from it... (aka: applying towards a track day and having Mr Clean show me the way :vtec: )

:)

Yep, we bought a new one in May.

Yeah, that's correct. I think a lot of people are confused because originally it was going to be a tax credit, but after congress got a lot of good publicity, they quietly nerfed the bill to make it just a deduction.

I see. So how much aproximately would one get back?
Is the benefit significant?

Dan

Yeah, that was my mistake too. They said it was going to be a tax credit. A deduction is dumb (to me) since I already get that in Texas.

it's definitely not the same as a credit... it depends on several factors but you can check online and can probably get a rough estimate.


I found this on the sound money matters site.. someone posted this... I think it sums it up...

-

First, per the IRS, it is not a tax credit, but a deduction. Deductions are a reduction in your taxable income. Credits are much more valuable because they are direct reductions in the tax you pay. For example, a deduction of $1 means that you save $0.35 on taxes if you are in the 35% tax bracket. A credit of $1 means you save $1 in taxes, no matter what your tax bracket.

Second, the estimated savings of $1500 on a new $25,000 car was based on the proposal, not the final law. As you noted, the original proposal included a tax deduction for car loan interest. However, it was left out of the final law. From Sen. Mikulski’s (amendment author) website (http://mikulski.senate.gov/_pdfs/Pre...xamendment.pdf), the $1500 savings was broken down into $420 savings from sales tax deduction and $1133 savings from interest deduction. Since the interest deduction was left off, the savings for the average family is only $420.

Third, because it is “above the line,” the tax saved will be significantly less than the sales tax paid. Imagine I paid $25000 for a car. Using the Senator’s assumption of 6% sales tax, I would have $1500 of sales tax that I pay at the time of the purchase to the state. This is how Sen. Mikulski can say that that this would increase state sales tax revenue. However, when I got around to filing my taxes, I would get to subtract $1500 from my income. This would reduce my federal income tax by the above $420. So, even if the federal government cuts the state benefits by the same amount as the tax cut, the state would still be up by $1000.

Sorry for the long diatribe. Your best advice is spot on. Shop for a car as if this tax savings didn’t exist, because for most of us, the savings would be less than 1 car payment.


--

I've been taking sales tax deductions on car purchases for years now - no change from my perspective. (I suspect this incentive is only a benefit for citizens of states w/ income taxes)

Thanks for clearing things up.
Had my hopes up a little too high. lol.

Dan

Seems like you'd take much less of a hit if you bought slightly used and avoided some of the depreciation tax.

Bought an '09 in April :banana:

Make to much $$ to qualify :cursing:
























J/K :dance2: